VAT: EU Commission announces three consultations

VAT: EU Commission announces three consultations

The EU Commission has opened three consultations on some of the medium term proposals referred to in the Commission’s action plan on VAT.

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Just before Christmas the EU Commission published three consultations. These concern the reform of the VAT rates, a proposal for a definitive VAT system for business to business (B2B) intra-EU transactions on goods and a proposal for a special scheme for small enterprises under the VAT Directive. The consultations take the form of surveys and are open until 20 March 2017.

The reform of VAT rates

The consultation notes that the rules on VAT rates were established over two decades ago with the aim of arriving at a definitive VAT system based on the origin principle, i.e. the VAT rate is driven by where the seller is located. Such a system requires similar rates to avoid distortion of competition. This plan has been abandoned in favour of a destination system i.e. the VAT rate is driven by where the customer belongs. Therefore, VAT rate differences have less potential to disrupt the functioning of the single market and this has opened up the possibility to reform rules on rates and provide more discretion to Member States.

To view the consultation details click here.

Definitive VAT system for B2B intra-EU transactions on goods

This proposal is essentially an overhaul of the treatment of B2B intra community supplies of goods. In the Commission’s Action Plan in April, this was one of the medium term measures aimed at tackling the VAT gap. The current system, introduced in 1993, was a transitional system. The Commission has highlighted issues around the two transactions approach (an exempt intra-EU supply and an intra-EU acquisition) and this will be replaced by one single supply. The more open question is how this supply will be taxed. The background to the survey suggests that two approaches are considered:

  • Taxation at the place where the goods arrive; or
  • Taxation at the place where the customer is located.

Again reference is made to the existing mini one stop shop suggesting that the preferred method is to use a similar approach i.e. the supplier charges VAT based on the rate of the customer’s Member State, with VAT being passed to the customer’s tax authority through a one stop shop. Reference is still being made to compliant small and medium enterprise taxpayers who will be able to continue using the existing VAT treatment.

To view the consultation details click here.

Special scheme for small enterprises under the VAT directive

This proposal is focused on small businesses and subjects such as VAT registration thresholds and special schemes such as the flat rate farmer’s scheme.

To view the consultation details click here.

 

For further information please contact :

Karen Killington

Steve Powell

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